Exxon Mobil, Chevron profits face choppy market

SteveGelsi

NEW YORK (MarketWatch) -- Exxon Mobil and Chevron will have to deliver a major upside surprise to break out of a wave of selling among oil service stocks recently, experts say.

But judging by the chilly reception given to other big players in the energy business, the No. 1 and the No. 2 U.S. oil giants aren't expected to dazzle with their profit updates on Friday.

Oil stocks have been reeling along with the broader market as they've shed their luster as a haven from woes in the financial sector.

While Chevron
CVX, +0.56%
and Exxon
XOM, +0.77%
are likely to post big earnings jumps, the prospect for slimmer profits ahead has weighed on the stocks.

One would think a 60% jump in profit by Royal Dutch Shell
RDS.A, +0.09%
would at least cause the stock to perk up a bit, but shares weakened by about 1% as the company fell short of estimates on Thursday.

While Shell's realized price for a barrel of oil jumped by nearly $31 to more than $90.47 a barrel during the fourth quarter, oil production fell. Margins were squeezed by the price of gasoline, which failed to keep pace with oil. See full story.

The picture may not differ much for Exxon Mobil and Chevron as Wall Street yawns at huge earnings boosts from petroleum companies because of problems tied to the rising cost of getting oil out of the ground and to the marketplace.

Adam Hewison, president of technical research firm INO.com, said it'll take a huge earnings beat by Exxon Mobil or Chevron to counteract short-term selling pressure.

"The markets are somewhat oversold, but if their earnings disappoint, we'll see another push down," Hewison said. "People are expecting an earnings beat. When you match expectations, it's not good enough. You've really got to hit it out of the park. I don't see either one of these companies hitting it out of the park."

Analysts expect Exxon Mobil to report earnings of $1.95 a share, up from $1.69 in the year-ago period, as the Dow component benefits from its history of strong exploration and production results.

Chevron's fourth-quarter net income is pegged at $2.26 a share, up from $1.74 a share in the year-ago period, according to a survey of analysts by Thomson Financial.

While the energy sector provided refuge from volatility in the 2007 stock market, it's been a rocky ride of late.

The Amex Oil Index
XOI, +0.37%
, Exxon Mobil and Chevron are all down about 10% so far this year, although they've risen from their lows for the month.

"We expect to see Exxon trade sideways to lower for the next 8 to 10 days," Hewison said.

Production challenges

Rick Chimblo, former chief geophysicist for Saudi Aramco and now manager of global business development for Genoil, said Exxon, Chevron and other oil majors continue to get squeezed by national oil companies, which control the lion's share of the world's oil reserves.

"Exxon, like all private companies, rely on their reserves. Those are being depleted year after year and they're not being replaced," he said. "Their new discoveries of oil are much smaller than what they're producing. They're depleting their only source of income."

While plenty of oil remains in the ground in place like Alaska and in deep offshore basins, "it's just a matter of how costly that oil will be," he said.

Chimblo praised efforts by some oil majors like BP to explore other types of energy to develop, even as the world's demand for oil continues to grow, putting a further strain on refining capacity.

Down the road, growing demand in China, India and the U.S. will continue to boost crude prices, but in coming months, oil prices should ease, putting a further damper on Big Oil profits, he said.

"With the economy in the U.S. and Asia continuing to slow, we may see (crude prices) back off," Chimblo said. "We may see $80 a barrel oil again. In the long term, once everybody starts recovering and we get the taste for gas again, we'll see $100 in 2009."

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